As family farms and ranches grow, both in dollars handled annually, and the number of individuals involved, a business approach to family and non-family employee management should be considered.
As discussed in Part 1, wealth management through salary and compensation analysis is an important component when bringing the next generation back to the operation. This article will focus on hiring and employment policies.
“They are family, thus they deserve a spot in the operation.” This may not be a true statement for your operation. Depending on the skills, education and experiences the individual possesses they may be a good fit for your operation, or they may not. Farm managers that have a list of positions within the operation, (including job descriptions and employment requirements) have a decision aid when considering the addition of a family member into the business.
Is there an open position?
The size of the operation will be a large factor in answering this question. Can the operation afford another family member being paid through cash and non-cash funds? (Part 1). Analysis of the operation’s financial status should be conducted to determine its financial trends. Operations that are determined to be profitable then need to evaluate what will be the effect of bringing an employee/partner into the business. There are likely short and long term costs and benefits to the decision, and these should be carefully evaluated prior to bringing the next generation back to the operation.
If the financial situation warrants the addition of a family member, a written policy that lists the job duties of each positon can further be used to determine if the individual has the required skill set needed to improve the operation.
For example, if your operation is full of highly knowledgeable agronomy-based employees, do you need another agronomist, or would hiring someone with book keeping, marketing and financial analysis skills be more beneficial to your operation? If the policies are put into place before it is needed, high school and college age children can plan their educational career to prepare for the openings in the operation.
On the job training.
Work for someone else before you work for the family operation. Some families may be really excited about having the next generation return to the operation, and may skip this policy. However, consider that working for others prior to returning gives them time to learn good employee habits such as: arriving to work on time, looking for “what’s next”, learning to take orders from a manager or improving their people skills in a management positon. The length of time could vary from 3 to 5 years depending on your operation.
Do they have experience in areas you need to fill?
While working away from the operation, did the family member take advantage of their years working for someone else, or did they just “put in their time” before returning to the family operation? Time working somewhere else should improve their experience level in many areas and not be considered “marking time”.
The work experience is designed to make them “better” before returning to the operation. This time off the farm also allows them time to consider if the family operation is the “right fit” for them. There is one realization the farm family will need to keep in mind, the next generation will not be readily available to help with busy times (i.e. branding, synchronizing, planting, harvest, etc.) as they once were. They are now employed by another business and will be expected to be there during the busy seasons.
Supervision and Reporting Protocols
Determining who each employee will report to, and what the expectations of each person are, provides a clearer understanding about what is to be done, when it needs to be done, and who to report to. This accountability ensures jobs are completed, communication is occurring among all levels of management, and provides the basis for advancement or reprimand.
These expectations will vary depending on the position. Developing a flow chart can help clarify the reporting process. The flow of information should improve management’s decision making ability as they process and monitor the business.
As a component of employment, evaluations are typically done the first 3, 6 and 12 months after an employee is hired, and then yearly after that. Evaluations should be looked at from two perspectives:
- What areas are the employee excelling at, and where should improvements be made?
- What areas are the business excelling at, and where could improvements be made?
Open communication during this time allows the employee to become vested in changes made to the operation. Employees that have their voice heard regarding changes and improvements take pride in the place they work and strive to keep the business profitable, viable and a good place to work.
Family members may enter into employment with the family business with the expectation of being an enterprise manager, or even overall manager sooner or later. Policies that provide timelines and performance objectives related to the advancement provide incentives to improve their skills as there is a plan in place, compared to the “someday” timeline. This policy also addresses situations where a non-family member may currently be employed. Prevention of issues that may arise if someone feels they are being pushed out of a job they have held for period of time is a critical component of this policy.
In situations where grandparents and parents are involved in the operation, this timeline provides all involved with information regarding retirement considerations, including but not limited to how retirement will be funded for each generation and where all involved generations will live.
Other Business Policies
There are also policies that should be considered prior to needing them. If a plan is developed before it is needed, a consistent protocol can be implemented each time a situation comes up.
Investments in the Business
In some cases, heirs or non-related individuals may want to invest in the operation. Will this be allowed? Will investors be voting members in the operation? How will payouts be made? Off-farm heirs may see this as a way to remain involved in their family operation, without being occupied in the daily activities, and maybe this appeals to the owners, generally the parents. When the bylaws of the limited liability corporation (LLC) or the business entity are created those questions can be addressed and policy created prior to being needed.
There may come a time where life leads one family member to another opportunity. If they have invested, been gifted or bought shares of the business, what kind of exit strategy has been developed to address this situation? The business may need to dissolve for a variety of reasons and this should again be addressed during the creation of the business entity.
As ownership of the business is critical to the operation by active members of the business, prenuptial agreement policies can be part of the family business policies. The prenuptial agreement should provide protection in cases of death or divorce of the family members involved in the operation.
While most commonly known in relation to the division of assets during a divorce, the agreement can also provide stability for the surviving in-law in case of death of their spouse. As the business may own the house, and the salary of the spouse was an important financial contribution to the family, the agreement can provide a timeline for housing and any financial contributions the business will continue to make.
Intentional conversations, followed by hard work, then written down and shared.
As family farms move to becoming farm businesses, policies developed prior to their need, can reduce stress and problems that occur without them. To create these policies there will need to be intentional conversations about these issues. This conversation will then need to be followed up with hard work. Discussing them casually in the cab of the pick-up is not enough. They need to be well thought through, and most importantly, written down and shared with all family members and employees affected by these policies.